SUCCESSFULLY PROCESSING LARGE
CORPORATE TAX RETURNS ELECTRONICALLY WAS A MAJOR ACCOMPLISHMENT, BUT
ELIMINATING MORE COMPLIANT RETURNS FROM THE AUDIT STREAM IS A WORK IN PROGRESS

Issued on May 19, 2011

Highlights

Highlights of
Report Number: †2011-30-048 to the
Internal Revenue Service Commissioner for the Large Business and International
Division.

IMPACT ON
TAXPAYERS

Implementing
the electronic filing (Modernized e-File) system and requiring large
corporations to use it were major accomplishments.† The benefits of the Modernized
e-File system are enabling the Large Business and International (LB&I)
Division to better meet the expectations for efficient, modern service among
the large corporations it serves.

WHY TIGTA DID THE AUDIT

This
audit was conducted in response to a suggestion by the Internal Revenue Service
(IRS) Oversight Board and is part of our Fiscal Year 2011 Annual Audit Plan
addressing the major management challenge of Tax Compliance Initiatives. †The overall objective of this review was to
evaluate the progress the LB&I Division is making to take advantage of the
opportunities offered by electronic filing (e-file).†

WHAT
TIGTA FOUND

As envisioned
in the LB&I Divisionís business case, meaningful work process improvements
have been realized in the years after large corporations were required to e-file.†
Notably, the accomplishments include reducing the costs associated with
the inefficiencies of manually processing paper returns, while enhancing
customer service and increasing availability of taxpayer information.† Corporate taxpayers also report that e-filing has reduced the time and
expense (burden) they spend filing their tax returns and related forms.

Due
to numerous process improvement projects to enhance its audit process for
corporations, it is very difficult, if not impossible,
to isolate the impact e-filing is
having on audit productivity.† However,
when compared

to
the years before e-filing was
mandated for large corporations, LB&I Division statistics show that
corporate audits are taking less time and generating more additional
recommended taxes.

Although
e-filing was expected to provide the
LB&I Division with the capability to eliminate more compliant taxpayers
from its audit stream, this key benefit has not been realized. †In each of the fiscal years since mandatory e-filing was introduced for large
corporations, a higher percentage (roughly one out of four) of corporate
returns audited in the Industry Case Program were closed with no adjustment
when compared to any of the three fiscal years preceding its introduction.†

WHAT TIGTA RECOMMENDED

TIGTA recommended that the Commissioner, LB&I Division,
ensure projects that are taking advantage of e-file data to enhance how returns are identified and selected for
audit include methodologically sound plans in evaluating project outcomes.† TIGTA also recommended that the Commissioner,
LB&I Division, assess the current methods of promoting and sharing best
practices for working with e-file
data and use the assessment, as well as the observations in this report, to
adjust current methods, as needed, to better meet examiner needs.

In
their response to the report, IRS officials agreed with the
recommendations and they plan to (1) develop, document, and carryout evaluation
plans to assess project results for workload selection processes and (2) assess
the relative effectiveness of the LB&I Division's current methods of
promoting and sharing best practices for working with e-file data and plan to record an improved Web-based training
session for employee use.†

READ THE FULL REPORT

To view the report,
including the scope, methodology, and full IRS response, go
to: